Evening sessions #1: The Pareto Principle

Everyone has encountered the Pareto principle whether they know it or not.

You’ve encountered it. I’ve encountered it. Whether we’ve used it to our advantage or not is a different matter altogether. Some of you may know it as the 80/20 rule and may have even read about it. For those who have no idea what I’m talking about lets have a recap before we go any further.

It was 1906 when Vilfredo Pareto made an observation that would redefine how many would approach management analytics in years to come. He noted that 80% of wealth in Italy, in this case property, was controlled by 20% of the population. He would later end up taking this down a sociological route but for business and management alike the significance is different.

It became clear that two independent variables can have disproportionate relationships. A simple example would be that 20% of your customers generate 80% of your profits. The logic here would therefore be to define the traits of those customers and seek more of them.

In healthcare, there are numerous potential avenues where we can look for these relationships. We can investigate the processes which disproportionately cause delays in waiting times, we can review which issues cause the most delays when doctors are on call, we can look at which doctors cause a disproportionate amount of complications and we can analyse what in their practice does so and eliminate it and so on and so forth.

80/20 Analytics can indicate positive patient management too as the sickest patients should take up a disproportionate amount of a doctors time compared to other patients on a ward.

The examples are there. We just have to look for them and then do something about them.

Dr Saif Abed
CEO and Co-Founder
Abed Graham Healthcare Strategies Ltd

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2 thoughts on “Evening sessions #1: The Pareto Principle

  1. What about the many instances in which things don’t fit the 80/20 rule, skewed distributions etc. Perhaps it is better to investigate what the statistics are of a problem and then determine the solution to them, rather than searching for 80/20 properties. Also, what solutions do knowing this property solve? Bearing in mind society has never solved this problem on a societal level? And finally, what does analysing waiting times have to do with the pareto principle? Surely you could just state any mathmatical principle and then say that it could be used to assess these things? What bayesian mathmatics? What about the golden ratio? Why pareto??

    • The 80/20 rule isn’t a definitive statistic rather it represents an imbalance between inputs and outputs. You can have 90/10 relationship, or 66/21. The factors are independent and don’t need to add to 100 together.

      The solutions behind 80/20 are applied across numerous sectors particularly IT and business. For example, IBM were one of the first companies to identify that the average processor spent 80% of its time powering 20% of processes (on average) which were all that was needed to run your average home computer. They cut out the other 80% and developed faster, smaller processors focusing on the key operations.

      Pareto is very much linked to Chaos Theory in so far as seemingly unpredictable patterns tend to actually following a regular pattern of causing imbalance. Almost all businesses find that a small number of customers and products account for their highest profits and so should re-allocate their resources accordingly.

      If you would like further reading material to see more examples I recommend investigating Zipf’s Principle of Least Effort and Juran’s Theory of the Vital Few.

      I have highlighted Pareto as a part of a series where I’m assessing numerous management philosophies applied in corporate environments to see how they may be adapted to healthcare. We can only move forward through collaboration and innovation and pareto is a tool that is regularly used in business and can be applied to healthcare.

      As a side note The Golden Ratio has been unsuccessfully applied to facial aesthetic surgery on numerous occasions.

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